Flight Centre, Qantas stocks slump further on pandemic pain

The COVID-19 pandemic has pushed key tourism stocks further into the red as companies suspended earnings guidance and minimised their operational exposure.

Despite a dramatic market rally late on Friday, Brisbane-based Flight Centre dived 2.4 per cent to $19.15; Webjet retreated 0.4 per cent to $5.54 and Qantas closed down 12.6 per cent to $3.18 on Friday.

But Corporate Travel Management, after falling more than 5 per cent in early trade, finished up 7.6 per cent at $9.25.

Virgin Australia's ASX-listed debt-funding notes traded 3.1 per cent lower to $63. Still, its shares were up 46.7 per cent to 8.8¢ after the nation's second-largest airline outlined a fresh response to the coronavirus.

These five companies have seen $6.1 billion wiped off their collective market value in the last fortnight due to the virus.

The disease – which has infected 128,000 and killed 4700 – had forced the airline to double its previously announced cuts to capacity as well as reduce pay for management and the board, chief executive Paul Scurrah said.

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"And we are continuing a freeze on base salary increases for non-enterprise agreement team members, and we've also paused all external recruitment and the use of consultants for the remainder of this financial year," he said.

"We are encouraging our team members to take unpaid leave or reduce standard working hours were operationally possible, including myself. Though I'll be working while I'm on leave."

Despite domestic flying facing a 5 per cent reduction over the next three months and the international network shrinking by 8 per cent in the same period, Mr Scurrah said job losses were still a way away due to a move before the COVID-19 crisis to cut 750 roles.

Yet he remained evasive when asked how much his cost-cutting measures – which also included seeking relief on government charges and a decrease in marketing spend – would save.

"As a specific, we are not breaking cost savings," he said on the consultancy freeze. "What we've announced today is a bundle of cost initiatives ... inclusive in all of that is many measures."

Brisbane-based Flight Centre also said it would accelerate its planned shrinkage of its Australian store network – culling 100 "underperforming" shops by June 30 this year. That’s almost 10 per cent of its network.

Impacted sales staff were to be assigned to fill existing vacancies at other stores, Flight Centre said.

It was among a series of moves Flight Centre announced to shave costs including reduced trading hours, encouraging people to take time off, executives not getting short-term bonuses and a recruitment freeze.

Cost reduction

There would be no redundancies in the short-term, but Flight Centre chief executive Graham Turner added that long-term: "Nothing’s off the table in terms of cost reduction".

The company’s guidance had been for underlying pre-tax profits to hit between $240 million and $300 million for the full year. It was dumped with the virus’s spread and increased travel restrictions quickly softening demand, combined with uncertainty about when a recovery will occur.

While the company had actually seen the total level of transactions made in February increase on a year earlier, Flight Centre predicted the ensuing softness would continue until at least April.

Mr Turner said while people still wanted to travel the main fear was of being trapped somewhere in a situation like a lockdown in Italy. "People are scared of the quarantine aspects," Mr Turner told AFR Weekend.

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He was hoping the situation would start to turn around in four to six weeks. But it could be five months before normalcy returned.

He criticised measures such as cancelling Melbourne’s Grand Prix. “There’s no proof this sort of thing helps,” he said, based on what he had heard from experts.

He also questioned the effectiveness of travel bans. "It’s not only ineffective, the chances are people will slip through the net," he said.

Flight Centre’s announcement, like others this week, also highlighted references to balance sheet "strength". Mr Turner said this was partly to reassure people given the share price hits.

If it gets worse, well, of course, we adapt.

— Jamie Pherous, Corporate Travel Management

Corporate Travel similarly canned last month’s guidance of full-year "underlying" earnings, before interest, tax, depreciation and amortisation, of between $125 million and $150 million. The virus and travel bans had been fuelling a material drop in client activity.

"Border closures – If you go back three weeks ago, it wasn’t even in Europe and there was a Chinese border closure."

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"It’s changing daily ... typically we have a lot of forward clarity and now we don’t."

Corporate Travel, which also argued its balance sheet was strong, also was enacting measures such as fee cuts for the top brass and shorter working weeks.

No job cuts were announced. "You’ve got to assume it’s temporary ... when it does return, you’re going to need all the people. So there’s no point putting out redundancies and having to employ people [again] in two months," Mr Pherous said.

"If it gets worse, well, of course, we adapt."

"The art of this is to get through it with a very strong balance sheet and come out the other side and hopefully take opportunities from those that haven’t done too well getting through it."

Mr Pherous argued that the travel industry had experienced similar setbacks. "We’ve seen this with September 11, with the GFC and some of the other viruses," he said.

Royal Bank of Canada analysts, led by Tim Piper, said on Friday morning that the number of companies dumping guidance highlights “the pace at which the situation has evolved, the significance to earnings and the uncertainty which remains”

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They said industry feedback with global business travel “suggests activity is currently tracking lower materially in the double digits”.

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